30 April 2009

Economist Robert Higgs has convincingly argued that the real tendency is not toward pure socialism, but toward a mixed economy and corporate liberalism. This means a corporate state where big business, special interests and the governing elite together rule over an economy of heavily regulated and politically connected crony capitalism. The public also tends to be included in a semi-democratic fashion -- unlike in outright totalitarian regimes of the past, there is wide enfranchisement and encouragement that the people engage in the system.

There is just enough of an opening for business and just enough of an illusion of public involvement that neither economic law nor public opinion will cause the government to fold over, despite its many tyrannical vagaries and encroachments on the liberties of the people. Higgs calls this system "participatory fascism" -- the economics of corporatist central planning coupled with a democratic form of government -- and says it is the dominating tendency in the modern developed world.

Discussion of fascism, like socialism, is often dismissed as hyperbolic, but the fundamental features of fascist central planning can be seen in our economic system. Politically protected big business, cartels, nominal private property rights, a welfare state and socialized risk -- crony capitalism and social interventionism -- mark both systems.

27 April 2009

Martin Wolf - whom finance ministers and leading economists read in order to find out what to think - had a nice turn of phrase. Derivatives, he said, did not - as advertised - transfer the risk to those people most able to manage it. "They transferred the risk to those least able to understand it."

But when Wall Street's vaults were open, what did they find? They hadn't transferred it at all! So much risk was left in the hands of the people who created it that - when it blew up - it flattened the entire investment banking industry.

24 April 2009

To the extent that "hoarding" or, more accurately, an increase in the demand for money for cash holding takes place, it is not because people have decided to save. What is actually going on is that business firms and investors have decided that they need to change the composition of their already accumulated savings in favor of holding more cash and less of other assets.

For example, an individual may decide that instead of being 90 percent invested in stocks and other securities and having only 10 percent of his savings in cash in his checking account, he needs to increase his cash holding to 20 or 25 percent of his savings.

Similarly, a corporation may decide that it needs to increase its cash holding relative to its other assets in order to be better able to meet its bills coming due. Indeed, this is happening right now as more and more firms find that they can no longer count on being able to borrow money for such purposes.

21 April 2009

The 1929 crash exposed the naivety and ignorance of bankers, businessmen, Wall Street experts and academic economists high and low; it showed they did not understand the system they had been so confidently manipulating. They had tried to substitute their own well-meaning policies for what Adam Smith called ‘the invisible hand’ of the market and they had wrought disaster. Far from demonstrating, as Keynes and his school later argued—at the time Keynes failed to predict either the crash or the extent and duration of the Depression—the dangers of a self regulating economy, the degringolade indicated the opposite: the risks of ill-informed meddling.

Paul Johnson in Modern Times. I doubt that the G20 has done any better.

16 April 2009

The search for profit and the avoidance of loss is the essence of the capitalist process. In a market economy, individuals and firms have incentives to discover products and services that consumers want and then produce them at the lowest cost. Profits become a signal of success and a reward for serving consumers efficiently. Contrariwise, when losses appear, they signal failure and inflict a penalty on firms for producing poor products or having bloated costs of production.

Dom Armentano (Professor Emeritus at the University of Hartford CT) on Bailout Baloney

13 April 2009

Do you not see, first, that — as a mental abstract — physical force is directly opposed to morality; and, secondly, that it practically drives out of existence the moral forces? How can an act done under compulsion have any moral element in it, seeing that what is moral is the free act of an intelligent being? If you tie a man's hands there is nothing moral about his not committing murder. Such an abstaining from murder is a mechanical act; and just the same in kind, though less in degree, are the acts which men are compelled to do under penalties imposed upon them by their fellow men. Those who would drive their fellow men into the performance of any good actions do not see that the very elements of morality — the free act following on the free choice — are as much absent in those upon whom they practice their legislation as in a flock of sheep penned in by hurdles.

03 April 2009

Truth is, socialism is not the wave of the future. Indeed, it is already almost as dead as the dodo. Hardly anybody in a position of political power or influence now wants to establish socialism along the lines of the Soviets or the Maoists. Everyone knows that doing so is a one-way ticket to widespread poverty, which leaves precious little surplus for the political kingpins to rip off.

No, the world is converging ever more visibly, not toward socialism, but toward what I (following Charlotte Twight’s usage) have for many years been calling participatory fascism. The hallmarks of this system are, on the political side, the trappings of democracy (parties, elections, procedural niceties, etc.), and, on the economic side, the form of private property rights (though not much of the substance that characterizes the real thing).

The beauty of this system is that the political system can easily be corrupted so that the power elite retains a firm hold on the state, despite the appearance that they rule only with the consent of the governed. The major political parties appear to compete, but for the most part they coalesce and conspire; on the basics, they are in complete agreement. The apparent “consent” they enjoy they actually manufacture by their control of the mass media, the schools and universities, and other key institutions, and no political opinion outside the 40-yard lines ever receives a hearing in serious political circles.

And while the ruling establishment retains an iron grip on state power, it allows entrepreneurs just enough room for maneuver so that innovators can continue to produce the new products, new methods of production, new raw materials, and new organizational forms that move the economy forward.

The most enterprising entrepreneurs can still get rich, although even they will see a large chunk of the fruits of their labors ripped away by the state. Productivity will increase sufficiently to keep a growing supply of creature comforts and amusements flowing to the masses, who are content with these things, along with the illusion of security that state functionaries induce in the people....

How do you think we got into our present situation, anyhow? It’s not as though the masses were repeatedly given what they didn’t want. They had plenty of opportunities to say no to dependency on the state, but they turned away; and they do not intend to go back any time soon to what they imagine to be an unbearably harsh style of life. Rugged individualism might have been okay for their great-grandparents, but they want no part of it.

All of which leaves us—by which I mean nearly everybody on earth—converging on the only form of politico-economic system that has a stable equilibrium in our present ideological circumstances: participatory fascism. I am not saying that this system is the only one possible, forever and ever, amen. I am saying, however, that until the world’s people abandon en masse the collectivist ideologies that now determine their social cognition, policy evaluation, political practices, and personal identities, any hope for moving to a freer form of economic order as a stable equilibrium is virtually nil.